Driving Performance at Peru’s Water and Sanitation Services Regulator

Executive summary

The National Superintendency of Sanitation Services (Superintendencia Nacional de Servicios de Saneamiento, Sunass) is Peru’s independent economic regulator for drinking water, sewerage treatment and sanitary disposal of excreta. The regulator operates in a challenging national and sectoral context, where only 51% of population has access to safely managed drinking water services.

Since its creation in 1992, Sunass has established itself as a technically sound regulator. In 2016, the regulator was entrusted with an expanded mandate. Originally responsible for regulating the country’s 50 urban water utilities, its new scope encompasses over 25 000 providers across the entire national territory. Sunass also became responsible for a number of new tasks, some of which go beyond the core regulatory functions shared by Peruvian sector regulators. In response to these changes, Sunass has undertaken a significant institutional transformation, including the establishment of 24 regional offices.

Going forward, Sunass should engage proactively with stakeholders to manage risks and expectations regarding the implementation of the regulator’s expanded mandate, improve role clarity, and identify areas where enhanced collaboration and co-ordination can support the achievement of policy goals. Crucially, a fit-for-purpose regulatory toolbox will be needed to ensure appropriate incentives to drive sector performance and increase the regulator’s impact. Furthermore, a consolidated identity and culture can ensure the coherence of approaches across the reformed organisation and enhance effectiveness.

Managing risks and expectations

Supervising a complex sector where access to safely managed services is low, Sunass oversees a large and heterogeneous mix of providers that are often characterised by poor financial sustainability and a lack of compliance culture.

The attribution of new functions and an expansion of the scope of the regulator’s remit to cover small towns and rural areas attests to Sunass’s sound reputation. However, this is an enormous undertaking and government policies have set ambitious targets for the water and sanitation sector. Its new responsibilities have absorbed much of the regulator’s attention as it strives to implement them by 2022, the deadline set in legislation. This task has been made even more challenging by an unstable political context and the disruption caused by the COVID-19 pandemic.

Key recommendations

• As an independent regulator, assess and engage with stakeholders on risks linked to the delivery on new responsibilities and manage expectations for implementation, in a context of reduced resources and an ongoing pandemic.

• Review the delivery of Sunass functions to prioritise essential activities and ensure sufficient resources towards improving the performance of urban providers.

Ensuring a fit-for-purpose regulatory toolbox

Sunass’s functions include inspecting regulated entities, setting tariffs, issuing regulations, sanctioning operators and resolving conflicts and claims. Its benchmarking of providers creates a powerful tool to incentivise sector performance and the regulator is improving its use of regulatory impact assessments.

Nevertheless, the regulator’s functions, powers and tools do not always match the needs and characteristics of the sector, which include poor performance and a resistance among consumers to pay tariffs. The regulator has few tools for encouraging better performance, and 38% of urban water utilities have had their management temporarily taken over by a technical state agency, which could affect the longer-term capacity of the sector. Monetary sanctions are mostly ineffective in changing operator behaviour.

Key recommendations

• Ensure a fit-for-purpose “toolbox” that incentivises behaviour change and takes into account sector challenges and specificities, including risk-based and behaviourally informed approaches.

• Increase the added-value of stakeholder engagement through targeted communication strategies and empowered and representative user councils.

• Make full use of benchmarking data for easy-to-understand guidance on interpreting key performance indicators that can help consumers hold operators to account.

Consolidating the institutional transformation

Sunass has responded to its new responsibilities and expanded mandate by launching a significant institutional transformation. It can be commended for establishing its 24 decentralised offices in a short period of time. The transformation has the potential of increasing the regulator’s effectiveness by bringing it closer to local operators, consumers and partners.

Sunass continues to develop capacity in the decentralised offices as it progressively delegates functions away from headquarters. Consistency in practices across offices will be important for impact and predictability in regulatory delivery. However, protocols for centralised communications along hierarchical lines may hinder this process.

Key recommendations

• Update the “Sunass identity and culture” of an independent economic regulator across headquarters and the decentralised offices.

• Provide training to develop the expertise of staff in decentralised offices and increase the level of interaction among staff members across offices to exchange information and ensure consistency in the execution of regulatory activities.

Collaborating and ensuring co-ordination

Sunass has established itself as a key actor for co-ordination at the sub-national level, and many actors report that it is an open and collaborative partner. Sunass involves municipal-level authorities (ATMs) in the engagement with rural providers. The ATMs perform a crucial role with the potential to increase the regulator’s reach towards all rural providers.

However, a large number of institutions are involved in delivering sector policy objectives and there are no appropriate mechanisms for high-level co-ordination. A lack of role clarity hinders the achievement of sector objectives.

Key recommendations

• Advocate for the creation of institutionalised, regular meetings for high-level co-ordination among all public authorities in the water and sanitation sector, to improve transparency, clarify roles and build a shared vision for the sector and trust among institutions.

• Join efforts in areas where the achievement of Sunass’s strategic objectives and sectoral policy goals depend on the actions of other public authorities, for example in inspections.

• Promote data sharing and collective data collection with other public bodies in the sector.